(Bloomberg) – Even for Citigroup Inc. was the big money. On Wednesday, staff from lending operations at the bank in New York delayed $ 900 million, apparently on behalf of Revlon Inc., to lenders of the loyal cosmetics giant controlled by billionaire Ron Perelman.
It was a mistake for centuries – a ‘clerical mistake’, as Citigroup told lenders – that plunged the bank now into a battle between the Perelman empire and a corps of sharp-running investment funds that had become its impatient creditors.
One involved financier compared the surprise payment to finding a fortune on the sidewalk. And just like last Friday, several hedge funds claiming that Revlon was defaulting on the loan showed no signs that they would return Citigroup’s money.
The nearly $ 1 billion transfer seems to be one of the biggest screws on Wall Street in centuries, and it’s set tongues that weigh on financial markets. The question everyone is asking: how could this happen?
A Citi spokeswoman declined to comment. A representative for Revlon said in an email that Revlon had paid the loan itself, or no part of it.
“It’s a billion dollar clerical mistake,” said Michael Stanton, a former adviser on restructuring and bankruptcy. “This is likely to knock some very large rooms at Citibank.”
Acceleration demand
At the heart of the story is an increasingly ugly battle between Revlon and a group of lenders who are suing the cosmetics company and demanding immediate compensation from a term loan coming to Revlon in 2023. In partnership with UMB Bank, the lenders argued that Revlon had changed some intellectual property rights that had its loan backed in collateral for new debt.
The lenders, including Brigade Capital Management, Symphony Asset Management and HPS Investment Partners, are seeking a court decision to enforce the proceeds of the collateral, which includes trademarks. Citi, the administrative agent on loan, was also named in the lawsuit as a suspect, although it was in the process of being fired from the agent role.
Around the same time the lawsuit was filed, nearly $ 900 million – an amount equal to the total principal value of the loan, plus interest accrued – entered the lenders’ bank accounts, according to people familiar with the matter. Now, Brigade, Symphony and HPS are among those who refuse to return the money, said the people, who asked not to be named to discuss a private matter.
“This is what the investors were asking for – they wanted their loan to be paid off,” said Bloom analyst senior embarrassing debt analyst Phil Brendel. “Since their case is also against Citibank, it is not clear why they will return the money.”
The payment was a particularly welcome surprise, seeing the loan trade for less than 30 cents on the dollar, signaling that investors have dim hopes of getting a normal recovery time under normal circumstances.
Citi still had to get a majority of the funds back on Friday, though the repayments continued to plummet, people said. The bank has launched an internal investigation into the case, one of the people said.
The wrong payment was first reported by LevFin Insights.
Read more: Revlon sues secured loan for takeovers
Revlon said it would contest UMB’s ‘unearned’ lawsuit and that the bank has no state to prosecute because it is not the agent on the loan.
“This group of lenders has repeatedly resorted to baseless allegations in an attempt to enrich itself and hurt the company by blocking Revlon from exercising its contractual rights to secure the funding needed to carry out our turnaround strategy. to celebrate and navigate the Covid-19 crisis, “Revlon said in an earlier statement.
Revlon, managed by Perelman’s MacAndrews & Forbes, struggled to stay relevant and steel-falling sales amid competition from Estee Lauder Cos. And a host of smaller businesses that use social media to attract customers. The cosmetics company has been hit hard by the pandemic and is trying to refinance its $ 3 billion in loans.
(Updates to Citi’s plans for an internal investigation in paragraph 12.)
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